Mark Pestronk
Q: I haven't gotten around to applying for my second PPP loan yet, as I am not sure that I have enough qualifying expenses. How long do I have to make up my mind and apply? Doesn't the American Rescue Plan Act extend the application deadline until September? I received only a tiny loan during the first PPP round last year, as the loan was based on the bottom line of my Schedule C. Could I get more this time around?
A: The deadline for filing a complete PPP application is still March 31. So, as of today, you will have less than two weeks left to get the application to your lender.
While the American Rescue Act extended lots of other programs, it did not extend PPP. That's a pity, because there are still over $200 billion in available PPP funds.
For sole proprietors, the latest PPP regulations bring very good news. At President Biden's request, the Small Business Administration (SBA) changed its rules in early March to provide that, instead of measuring the maximum amount of the PPP loan based on the bottom line of your Schedule C for 2019, you can now use the top line.
If you are a sole proprietor such as a home-based independent contractor of a host agency or a solo travel advisor without a host and you do not file taxes as a corporation, then you report your income and expenses on Schedule C of your Form 1040. For example, if you had $80,000 in commissions and fees in 2019 and $50,000 in expenses, your net income would have been $30,000.
In that case, until now, the maximum PPP loan you could get would be one-twelfth of your net income times 2.5, or $6,250. That obviously wasn't much to get you through the pandemic.
Now, however, you can get one-twelfth of your gross income, times 2.5, or $16,667. The ceiling on loans for sole proprietors with no employees continues to be $20,833, so you cannot get more than that.
If you have already applied for PPP as a self-employed individual using net profit, you may be out of luck, because the new rule states that it applies to "loans approved after the effective date."
However, information provided by the SBA to lenders states that a lender may cancel a pending PPP loan application and submit a new application on behalf of the borrower all the way up to the point where the lender has submitted the loan to the SBA. So, if your lender will let you, cancel your pending application and apply quickly for the higher amount based on your 2019 gross income.
Unfortunately, once the loan has been disbursed to you and the lender has reported it to the SBA, there is no option to reapply for a larger amount.
As with all second-round PPP loans, your gross income must have dropped at least 25% during 2020, but I am certain that you can prove that.